Phillips v Tobias Partners Pty Ltd

[2013] NSWSC 496

Supreme Court

New South Wales

Medium Neutral Citation:	Phillips v Tobias Partners Pty Ltd [2013] NSWSC 496
Hearing dates:	2 May 2013
Decision date:	03 May 2013
Jurisdiction:	Common Law
Before:	Beech-Jones J
Decision:	Grounds of appeal and cross appeal rejected.  Applications for leave to appeal refused.
Catchwords:	Appeal from Local Court - construction of agreement to supply architectural services - entire obligation - staged performance of work - leave to appeal from costs decision.
Legislation Cited:	- Building and Construction Industry Security of Payment Act 1999 - Local Court Act 2007 - s 39, s 40 - Uniform Civil Procedure Rules 2005 - r 14.19
Cases Cited:	- Baltic Shipping Company v Dillon [1993] HCA 4; 176 CLR 344 - Cutter v Powell (1795) 6 TR 320; 101 ER 573 - Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317 - Jennings v Credit Corp Australia Pty Ltd [2000] NSWSC 210; 48 NSWLR 709 - Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221 - Sayed v Deng [2012] NSWSC 851 - Steele v Tardiani (1946) 72 CLR 386
Texts Cited:	John W. Carter, Contract Law in Australia, 6th ed (2013) LexisNexis Butterworths
Category:	Principal judgment
Parties:	Edwin Phillips (Plaintiff/Cross Defendant) Tobias Partners Pty Ltd (Defendant/Cross Claimant)
Representation:	Counsel: R.I. Bellamy (Plaintiff/Cross Defendant) S.A. Benson (Defendant/Cross Claimant) Solicitors: Bottrill Van Kempen Solicitors (Plaintiff/Cross Defendant) Lenehan & Co (Defendant/Cross Claimant)
File Number(s):	2012/278149
Decision under appeal	Jurisdiction: 9109 Date of Decision: 2012-08-14 00:00:00 Before: Atkinson LCM File Number(s): 2012/278149

EX TEMPORE Judgment

1. This is an appeal by Mr Edwin Phillips from a decision of the Local Court awarding judgment against him in favour of the defendant in this Court, Tobias Partners Pty Ltd ("Tobias Partners"), in the amount of $23,512.00 with interest.

1. Tobias Partners was the plaintiff and cross defendant in the proceedings in the Local Court. Mr Phillips was the defendant and cross claimant. Mr Phillips was also ordered to pay 75 percent of Tobias Partners' costs in the Local Court. Given that the proceedings appeared to have involved eight hearing days, substantial interlocutory disputes and the preparation of detailed written submissions on a number of different topics, it can be expected that those costs are substantial.

1. The scope of an appeal to this Court from the Local Court is governed by ss 39 and 40 of the Local Court Act 2007, which provide:

"39  Appeals as of right

(1)  A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court may appeal to the Supreme Court, but only on a question of law.

(2)  A party to proceedings before the Court sitting in its Small Claims Division who is dissatisfied with a judgment or order of the Court may appeal to the District Court, but only on the ground of lack of jurisdiction or denial of procedural fairness.

40  Appeals requiring leave

(1)  A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact may appeal to the Supreme Court but only by leave of the Supreme Court.

(2)  A party to proceedings before the Court sitting in its General Division who is dissatisfied with any of the following judgments or orders of the Court may appeal to the Supreme Court, but only by leave of the Supreme Court:

(a) an interlocutory judgment or order,

(b) a judgment or order made with the consent of the parties,

(c) an order as to costs."

1. In Sayed v Deng [2012] NSWSC 851 at [26] to [34], I described how these provisions operate to impose restraints on the cost of litigation to parties in appealing decisions of the Local Court. Those comments apply with particular force to this litigation where the costs must now be out of all proportion to the amount in dispute.

Background

1. Via an associated company, Mr Phillips owns a substantial piece of property in Lighthouse Road, Byron Bay. At some point he engaged architects to design a residence for the property. They did so. Ultimately he obtained a development consent for the construction of the residence. Before building on the property commenced, Mr Phillips decided that he wished to modify the proposed development. He appears to have engaged the services of a number of architects over the years before ultimately retaining Tobias Partners.

1. In February 2009, Mr Phillips and Tobias Partners executed a written agreement for the latter to provide the former with architectural services in relation to the construction of a new residence on the property in Lighthouse Road ("the Architecture Agreement"). I discuss the terms of the Architecture Agreement further below. The anticipated total project cost was $5 million.

1. Tobias Partners commenced work, but the relationship between them and Mr Phillips soured.

1. As I will explain, the Architecture Agreement contemplated work in five stages. Between 17 February 2009 and 29 July 2009, Tobias Partners rendered five invoices to Mr Phillips. The first invoice concerned Stage 1 and was paid. The next invoice was sent on 30 April 2009 seeking payment for the first half of Stage 2. It totalled $23,750.00 excluding GST and leaving aside certain costs. That invoice was also paid.

1. The next invoice was dated 31 May 2009 and sought payment for the balance of Stage 2, plus certain costs said to be associated with Stage 3. This invoice was not paid. The last two invoices were sent on 30 July 2009 and 29 July 2009 and sought various amounts in respect of Stage 3. They were also not paid.

1. Ultimately Tobias Partners suspended work for Mr Phillips, by reason of the non-payment of its invoices. In September 2009, it commenced proceedings seeking the payment of the balance of the amounts said to be owing under the invoices of $54,308.93 excluding costs, interest and the like.

1. Mr Phillips filed a cross claim seeking recovery of the amount he had paid, namely $53,644.25. At some point, the amount claimed by Tobias Partners was paid into Court. As I have stated, the hearing occupied some eight days.

1. On 2 December 2011, the learned Magistrate published her judgment on liability ("the liability judgment"). Her Honour found, inter alia, that Tobias Partners could recover a significant portion of the fees claimed in respect of Stage 2 of the Architecture Agreement, but could not recover the fees claimed in respect of Stage 3. Her Honour rejected Mr Phillips' cross claim seeking recovery of any of the amounts paid by him. Her Honour directed the filing of written submissions concerning the assessment of the amount found to be owing to Tobias Partners.

1. On 30 April 2012, her Honour published a further judgment ("the quantum judgment"). Her Honour concluded that Tobias Partners had undertaken 90 percent of the work contemplated by Stage 2 and was entitled to recover 90 percent of the fees contemplated by that stage. Her Honour ordered that Mr Phillips pay Tobias Partners 90 percent of the outstanding invoice for Stage 2, being $21,375.00 plus GST, excluding interest. Before me, the parties suggested that there may have been a mathematical error in that approach.

1. Her Honour then received further written submissions on costs. On 20 July 2012, her Honour published her third judgment ("the costs judgment"). Her Honour ordered that Mr Phillips pay 75 percent of Tobias Partners' costs of the proceedings "on the ordinary basis" and made various orders dealing with the funds paid into Court.

1. Although a number of grounds were pleaded in his summons in this Court, at the hearing Mr Phillips contended that there were two erroneous aspects of her Honour's judgments. First, he contended that her Honour had erred in law in failing to find that the Architecture Agreement was not an "entire contract", a contention I will explain further. Second, he contended that her Honour erred in law in awarding Tobias Partners 75 percent of its costs of the hearing. As that contention involves a challenge to a determination concerning costs, Mr Phillips needs a grant of leave to pursue it (see s 40(2) of the Local Court Act).

1. Tobias Partners filed a cross appeal. In its cross appeal it takes issue with three aspects of her Honour's judgments.

1. First by grounds 1, 2 and 3, it contends that her Honour erred in finding that, until Stage 2 was completed, Tobias Partners could not recover for work undertaken in respect of Stage 3.

1. Second, by ground 4, Tobias Partners contends that her Honour erred in failing to find that the work undertaken by Tobias Partners on Stage 2 constituted "substantial compliance" sufficient to engage its entitlement to receive the entirety of the relevant fees for Stage 2.

1. Third, at the hearing of the appeal Tobias Partners sought and was granted leave to add a ground to its cross appeal asserting that her Honour erred in failing to award Tobias Partners the entirety of its costs of the hearing. As with Mr Phillips, it was accepted that Tobias Partners needs leave to appeal to pursue that ground.

1. I will first deal with so much of these grounds as concerns the payment of monies for Stage 2. I will then deal with so much of these grounds as concerns Stage 3. I will address the grounds concerning her Honour's costs orders last.

Mr Phillips' First Ground - "Entire Contract"

1. The phrase "entire contract" is a shorthand description used to describe a contract where the parties have agreed, expressly or impliedly, that complete performance by a party seeking recovery is a condition precedent to the recovery of the contract price (see Cutter v Powell (1795) 6 TR 320; 101 ER 573). In such cases, nothing can be recovered "unless the work be done or it can be shown that it was the other party's fault that the work was incomplete or that there is something to justify the conclusion that the parties have entered into a fresh contract" (Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221 at 233-234 per Starke J).

1. In Baltic Shipping Company v Dillon [1993] HCA 4; 176 CLR 344 at 350, Mason CJ noted that the phrase "entire contract" is more accurately described as a contract containing an "entire obligation", being an obligation the performance of which is indivisible. It follows that the relevant obligation need not be the entirety of the performance expected of a party under a contract. Some aspects of the obligations imposed upon a party can be divisible but other aspects might have to be exactly performed. Thus, in describing a contract to cut and supply wood to a specific measurement in Steele v Tardiani (1946) 72 CLR 386 at 401, Dixon J stated:

"It is true that they were not employed to do a single piece of work under one entire contract so that, until the whole had been substantially performed, they would obtain no right to any payment. In that sense, it is not like the contract to build two houses for a single lump sum made by the unsuccessful plaintiff in Sumpter v Hedges."

His Honour continued (at 401):

"But it can hardly be denied that the consideration which the employees were to give for the remuneration is firewood cut according to contract and, so to speak, only those billets or sticks can be counted which qualify by substantial or reasonable compliance with the specifications. In this sense the terms of remuneration are 'entire', or, in other words each divisible application of the contract is entire and is only satisfied by performance, not partial, but substantially complete."

1. In the Local Court Mr Phillips made a similar contention in relation to the Architecture Agreement. He contended that performance by Tobias Partners was, in effect, divisible into five stages and that, in respect of Stages 1 to 2 and 4 to 5, each of them was an entire obligation, such that no legal obligation to pay a fee for each of those stages arose until the work on it was fully completed. Mr Phillips contended that Stage 2 was not completed and, thus, no obligation to pay any fee in respect of that stage had arisen.

1. Further, in his cross claim Mr Phillips contended that it was wrongful of Tobias Partners to insist on the payment of the balance of fees for Stage 2 prior to its completion and that its insistence amounted to a repudiation of the Architecture Agreement. He said that he accepted the repudiation, bringing the contract to an end. He claimed, inter alia, that he was entitled to recover all the fees he had paid in respect of Stage 2.

1. Her Honour rejected the contention that the Architecture Agreement was an entire contract or, more accurately, that it contained in respect of Stage 2 an entire obligation. In the course of so reasoning, her Honour also made a finding that, in respect of Stage 2, there was not a total failure of consideration. As I will explain, this latter finding was of significance to Mr Phillips' cross claim.

1. However, her Honour also found that Tobias Partners had not completed work on Stage 2. In particular, in the quantum judgment her Honour expressly found that Tobias Partners had not undertaken substantial performance of the obligation to complete Stage 2. This finding is challenged by Tobias Partners in its cross appeal. Left unscathed, it meant that if Mr Phillips was successful in establishing that the completion of Stage 2 was an entire obligation imposed on Tobias Partners in the sense that I have discussed, it would mean that he did not have any obligation to pay any further amount for Stage 2. The question of whether Mr Phillips could recover for amounts already paid in respect of Stage 2, as sought by his cross claim, is a different matter.

1. Counsel for Mr Phillips, Mr Bellamy, contended that her Honour had erred in law in finding that it was not an entire agreement in two respects.

1. First, he contended that Tobias Partners had admitted in its pleadings that its obligation to complete Stage 2 was an entire one, but that her Honour had traversed that admission in her judgment. It was not disputed that if her Honour had made a finding contrary to an admission in the pleading it would amount to an error of law. The question is whether her Honour did so.

1. The relevant admission was said to be contained in paragraph 4 of the defence to the cross claim. Paragraphs 3 and 4 of the cross claim pleaded as follows:

"3.  The contract standing between the cross-defendant and cross-claimant was an entire contract calling for exact, or in the alternative, substantial performance.

4.   In the alternative to paragraph 3 above, the contract standing between the cross-defendant and cross-claimant was a contract calling for exact, or in the alternative, substantial performance of several stages."

1. Paragraph 4 of the defence to the cross claim stated:

"4.  In response to paragraphs 3 & 4 Tobias accepts for the purpose of this litigation the matter pleaded and says the contract terms were all of the conditions which bound the parties and Tobias reads and relies upon them for their full meaning and effect."

1. There is no doubt that, by a pleading, a party can admit and be bound by a matter of law (see Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317 per Gummow J, and r 14.19 of the Uniform Civil Procedure Rules). However, the precise admission identified must be clear. The difficulty with these extracts from the pleadings is that they do not clearly convey that the "exact ... or substantial performance" referred to is a condition precedent to Tobias Partners recovering any part of the purchase price. Read literally, they only convey an admission that exact and substantial performance was required but, arguably at least, paragraph 4 of the defence to the cross claim leaves open whether Tobias Partners accepted that no obligation to make a payment arose unless that exact or complete performance took place.

1. Mr Bellamy also pointed to concessions that he said were made by counsel for Tobias Partners before her Honour. However, those contentions were, in my view, qualified. This is illustrated by the following extract from the submissions of counsel for Tobias Partners:

"Paragraph 4 of our defence your Honour does accept for the purpose of this matter that what is pleaded and, it says, and says [sic] the contract terms were all of the conditions which bound the parties and Tobias reads and relies upon them for their full meaning ... So your Honour we just say there's [an] independent contractual mechanism by which we should be paid and the timing for it. How you want to characterise the contract we say that it really goes nowhere your Honour because Cutter and Powell and cases like it, you really don't get to first base on that your Honour where each stage ..."

1. Although unclear, I do not accept that this submission involved the admission sought by Mr Phillips. The reference to the "independent contractual mechanism" by which Tobias Partners would be paid seems to me to suggest that what was being conveyed was that Tobias Partners did not accept that its right to payment was contingent upon complete or exact or even substantial performance by it of the relevant stage.

1. It follows that I reject the contention that her Honour was bound by the pleadings to act on the basis that complete or substantial performance of Stage 2 was a precondition to there arising any obligation on the part of Mr Phillips to make payments in respect of it.

1. Second, Mr Bellamy submitted that, in any event, her Honour erred in construing the Architecture Agreement as not requiring complete or substantial performance of Stage 2 before any obligation to make payments in respect of it could arise. This contention involves a question as to the proper construction of the Architecture Agreement, which is clearly a question of law (see Jennings v Credit Corp Australia Pty Ltd [2000] NSWSC 210; 48 NSWLR 709 at [11]).

1. The Architecture Agreement consisted of a five page letter signed by the parties, to which there was attached a four page document which was some form of standard terms and conditions. Both of the documents had word processing problems. Section "b" of the letter was entitled "[o]ur fees". It consisted of five sub-clauses numbered 2.1 to 2.5. Clause 2.2 recited that it "appears there will be five stages in the Project", which were listed as being:

"1. Review Existing Design - Preliminary Sketch Design;

2. Resolved design concept;

3. Section 96 application;

4. Design Development and Contract Documentation;

5. Contract Administration."

1. Clause 2.3 is of particular significance. It provided:

"Our typical fee if we were to have been given this project from it's [sic] conception would be 12.5% + GST, however on the basis that preliminary work has already been carried out we have reduced our fees accordingly. Fees for stages 1, 2, 4 & 5 will total 8.55% + GST of the TPC (Stage 3 will be billed at hourly rates). It is this percentage of the TPC which is payable by you regardless of the stage by stage breakdown or what the TPC might be at any time or what the actual cost of the project is at any time. The allocation of percentages in paragraph 2.4 of this letter is simply a guide to billing and does not represent an actual fee. The instalment payments of our total fees are set out in paragraph 2.5." (emphasis in original)

1. Clause 2.4 then stated: "Our fees for each stage are calculated as follows ..." For stages, 1, 2 and 3, it stated:

"1. Review Existing Design - Preliminary Sketch Design

This work involves:-

a. Obtain client's brief;

b. research existing constraints - detailed site study (we require a detailed survey), implications on access, structure and services, constraints by the approval authority, review existing design and documentation;

c. initial meeting with any consultants or contractors to obtain their preliminary design input;

d. prepare analysis diagrams, initial planning and sketches;

e. obtain an initial cost estimate from a quantity surveyor (at the client's cost);

f. Seek client approval to proceed to next stage.

Our fee to complete the work in this stage will be 0.5% + GST of the TPC.

2. Resolved design concept

This work involves:-

a. Arrange and attend meetings with client, authorities and others as required.

b. Develop design concept.

c. Obtain a cost estimate update from the quantity surveyor (at client's cost).

d. presentation of resolved design concept - this will include 2D and 3D drawings, and mood board;

e. Seek client approval to proceed to next stage.

Our fee to complete the work in this stage will be 0.95% + GST of the TPC.

3. Section 96 application

Our work in this stage involves:-

a. Prepare design briefs for consultants required for the application.

b. Obtain quotations from the consultants and upon client approval engage them on their behalf;

c. Coordinate the design work undertaken by consultants with the design;

d. Design development in response to concept presentation feedback from the client and feedback from the consultants;

e. Obtain an updated cost estimate on the developed design from a quantity surveyor (at the client's cost)

f. Prepare Section 96 drawings and documentation suitable for submission to the approval authority.

Our fee for work will be charged at hourly rates." (emphasis in original)

1. Clause 2.5 then stated:

"Payment of our fees

Total fees for stages 1, 2, 4 & 5 inclusive are 8.55% + GST of TPC (Stage 3 will be billed at hourly rates). That total amount is payable as follows:-

a) first instalment payable upon acceptance of these terms - the fee for stage 1;

b) balance of fees for stages 1 to 5 inclusive will be the subject of monthly invoices to you payable according to the terms and conditions attached to this letter;

c) we reserve the right to vary the TPC as the Project develops and more realistic approximations of the actual or budgeted cot of the Project emerge. Variations to the TPC will result in consequent variations of the fees." (emphasis in original)

1. Section "c" of the letter identified various costs and expenses in addition to those described in section "b".

1. Within the standard terms and conditions, Clause 19.1 provided that:

"The Client must pay all fees and other out-of-pocket expenses within a period of seven days from the date of invoice."

1. Clause 24.1 within the standard terms and conditions conferred on either party a right to terminate the agreement by giving 20 working days notice. Clause 26.1 enabled Tobias Partners to suspend work if, inter alia, its fees remained unpaid.

1. Mr Bellamy placed particular reliance on Clause 3.0 of the standard terms and conditions which provided:

"a. Tobias Partners grants the Client one license [sic] to use the design and the documents and drawings to produce the Project for which they were intended, conditional upon all of the following:-

i)   the license [sic] applies only to the Site or to that part of the Site which the design relates;

ii)   Tobias Partners completes the particular stage or stages of the Services for which Tobias Partners has been commissioned;

iii)   fees and out of pocket expenses properly due to Tobias Partners have been paid in full."

1. In my view, the critical clauses are 2.3 and 2.5 of the letter. Leaving aside Stage 3, they specify that what is payable is 8.55 percent plus GST of the total project cost "regardless of the stage by stage breakdown or what the TPC might be at any time or what the actual cost of the project is at any time". Clause 2.3 specifies that the fees listed for each stage in Clause 2.4 are "simply a guide to billing", although it must be accepted that there is an obvious tension between that statement and the statement in bold at the end of each description of the stages in Clause 2.4.

1. Finally, Clause 2.3 directs attention to Clause 2.5 for specification of the instalment payments payable under the Architecture Agreement. Clause 2.5(a) identifies the instalment payable upon the acceptance of the terms of the agreement. Mr Bellamy contended that that was the only "instalment" referred to in Clause 2.5. I do not agree. In my view, Clause 2.5(b) identifies another form of instalment, namely those instalments specified in the monthly invoices. Once those invoices are issued, the obligation to pay them is imposed by Clause 19.1 of the standard terms.

1. Leaving aside Stage 3, these provisions appear to specify the total level of fees payable and that they are payable in instalments, the first instalment being payable upon entry into the Architecture Agreement and the balance being payable as specified in the monthly invoices.

1. Subject to considering the matters addressed next, these provisions are fundamentally inconsistent with the parties having agreed that complete performance by Tobias Partners of all of the work in the Architecture Agreement, or all of the work specified for any particular stage, was a condition precedent to Tobias Partners being able to invoice and recover any part of the contract price.

1. Mr Bellamy pointed to a number of features of the Architecture Agreement which he submitted warranted a contrary conclusion.

1. First, he noted the statements at the end of each of the specifications of Stages 1 and 2 in Clause 2.4 concerning what was "[o]ur fee to complete the work". I accept that the emphatic nature of those statements sits uneasily with Clause 2.3. However, that said, those statements do not state that the fees are only payable upon completion of the work.

1. Second, Mr Bellamy pointed to the staged nature of the work contemplated by the Architecture Agreement. I agree that that is what is clearly suggested. There is no doubt that the work undertaken by Tobias Partners is clearly divisible into those stages, in the sense contemplated by Dixon J in Steele v Tardiani. However, the balance of the clauses that I have pointed to, in my view, make it clear that the obligation to pay any instalment or part of the fees is not contingent upon the completion of those stages.

Third, Mr Bellamy noted that Clause 3.0 of the standard terms and conditions precluded his client from utilising the benefit of any work done on a particular stage unless that stage had been completed and all outstanding invoices had been paid. He contended that this meant that his client could be required to make a part payment for, say, Stage 2 work but not receive any benefit for that payment as it could not use the incomplete work performed to that point as it had no licence. This contention appears to be correct. A construction which allows that to occur is not one which would easily be adopted. Nevertheless, I consider that the clauses that I have referred to, namely clauses 2.3 and 2.5, are so clear in denying that Tobias Partners' entitlement to be paid its invoices is dependent upon the completion of any particular stage, that they outweigh this consideration.

1. It follows from this that I reject the first ground of Mr Phillips' appeal. This is sufficient to lead to the upholding of so much of her Honour's judgment as awarded an amount for Stage 2 in Tobias Partners' favour, and rejected Mr Phillips' claim for recovery of the amounts already paid by him in respect of Stage 2.

1. For the state of completeness, I note two further matters.

1. First, in relation to Mr Phillips' cross claim, had I accepted his construction of the Architecture Agreement, his ability to recover the amounts already paid for Stage 2 would be governed by the following passage from the judgment of Mason CJ in Baltic Shipping at 350:

"When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contract-breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration. If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration."

1. Her Honour's finding that there was not a total failure of consideration in respect of Stage 2 would have represented a further obstacle to recovery by Mr Phillips even if had he been successful in relation to ground 1.

1. Second, leaving aside Stage 3, the construction of the Architecture Agreement which I prefer appears to enable Tobias Partners to issue invoices for fees that are not necessarily related to work undertaken to that point in time. Although it did not arise in this case, whether an amount so paid could later be recoverable if complete or even adequate performance was not forthcoming is a question addressed by the judgment of Mason CJ in Baltic Shipping from 351 to 353.

Ground 4 of the Cross Appeal

1. As formulated, ground 4 of Tobias Partners' cross appeal stated:

"In the alternative, the learned Magistrate erred in finding that the Defendant had only completed 90% of the work in Stage 2 and in failing to find that the Defendant had substantially performed the Stage 2 work." (reference omitted)

1. In so far as this ground contends that her Honour failed to find that Tobias Partners had substantially performed the work contemplated by Stage 2, it either raises a question of fact or, at the very least, a mixed question of fact and law (see John W. Carter, Contract Law in Australia, 6th ed LexisNexis Butterworths at [28-32]).

1. In oral submissions counsel for Tobias Partners, Mr Benson, contended that her Honour erred in failing to find that, to the extent Stage 2 was not completed, it was due to fault on the part of Mr Phillips. It was submitted that a finding in those terms, had it been made, would have given rise to a right of recovery by Tobias Partners in accordance with the passage from the judgment of Starke J from Phillips v Ellinson Brothers Pty Ltd that I have set out above (at [21]). Again, this contention appears to raise either a question of fact or a question of mixed fact and law.

1. In submissions, Mr Benson accepted that this ground of appeal was otiose if Mr Phillips' first ground was unsuccessful. Thus, in substance, it appeared to only be a notice of contention point and would not now appear to arise. In any event, I refuse leave to raise this ground. The considerations I have referred to at the commencement of the judgment overwhelmingly point to the need to refuse leave to reargue factual questions in this Court, given the amount involved in the dispute and the breadth of material that arises from a hearing that occupied so much time in the Local Court. I refuse leave to Tobias Partners to raise ground 4 of the cross appeal.

Grounds 1 to 3 of the Cross Appeal - Stage 2 and 3 Invoices

1. Grounds 1 to 3 of Tobias Partners' cross appeal contend that her Honour erred in refusing its claim for recovery of fees for Stage 3 on the basis that Stage 2 was not completed.

1. I have already set out the provisions of the Architecture Agreement identifying the steps involved in Stage 2. As I have stated, her Honour found that those steps were not completed. In particular, her Honour found that a cost estimate update had not been provided and that the entirety of the design concept had not been resolved. Although Mr Benson challenged aspects of these parts of her Honour's reasoning for so finding, no separate ground of appeal contended that her Honour should have found those matters. In any event, such a ground would require a grant of leave which, for the reasons indicated, would face formidable hurdles. There was also no finding by her Honour that Mr Phillips had agreed that work on Stage 3 could commence.

1. Her Honour found that, properly construed, Stage 1 of the contract had to be completed before moving to Stage 2, and Stage 2 had to be completed before moving to Stage 3. The only aspect of this conclusion that needed to be considered is the conclusion that Stage 2 needed to be completed before moving to Stage 3. In that context it should be noted that the charges for Stage 3 stand outside the arrangements for invoicing and payment of fees that are based upon a percentage of the total project cost. Instead, they were hourly rates. It should also be noted there was no express limit on the fees that could be charged for Stage 3, other than that which might be implied by concepts of reasonableness.

1. Mr Benson submitted there is nothing in the Architecture Agreement which expressly precluded his client from undertaking and charging for work undertaken in pursuit of Stage 3 prior to the completion of Stage 2. He accepted that there is nothing in the Architecture Agreement expressly authorising that either. He submitted that her Honour's conclusion could only be supported on the basis of some implied term precluding the invoicing for work done on Stage 3 prior to Stage 2 having been completed. I do not agree. The only process that was embarked upon by her Honour, and in turn being embarked upon by me, is the process of ascertaining the parties' intentions, bearing in mind that the contractual document that they agreed to is less than fulsome in spelling out all their respective rights and obligations under various scenarios.

1. The Architecture Agreement clearly identifies that the work was to be performed on the project in stages. In my view, it also contemplates that each stage will follow the other.

1. The steps involved in Stage 2 are meant to culminate in there being a resolved design concept, which has been the subject of a cost estimate update from a quantity surveyor. At that point the architect is meant to proceed to obtain a client's approval to proceed to Stage 3.

1. Stage 3 provides for the undertaking of the potentially labour intensive work of obtaining a modification to the development consent that Mr Phillips had already obtained. At that point of the agreement, the client is exposed to the pitfalls of time charging with, as I have stated, no express limit on that exposure.

1. The Architecture Agreement contemplates that the work done on the section 96 application will be concerned with the resolved design concept that is the outcome of Stage 2 and which has been costed during Stage 2. If work is undertaken on Stage 3 without a proper costing of the resolved design concept under Stage 2, it could prove to be a totally pointless task. It would be wasteful to pursue a section 96 application for a design concept that was not resolved with the client or which, not having yet been costed, might turn out to be well beyond their means.

1. Tobias Partners' approach would enable the client to be exposed to the time charging under Stage 3 in respect of a section 96 application, which was premised upon a design concept to which they had not agreed and for which they did not have an updated cost estimate.

1. By contrast, her Honour's approach avoids the client being subject to that exposure. If, at the end of Stage 2 the client's approval to proceed to Stage 3 is sought, the client can limit their exposure by denying that approval and, if necessary, terminate the contract on 20 days notice. Thus the client will retain some measure to protect themselves from a potentially unlimited exposure to fees being charged under Stage 3.

1. By contrast, Tobias Partners suggested construction would involve the exposure of the client to incurring hourly costs without their express knowledge or consent. Its construction is completely inconsistent with the avowed purpose of what is required at the end of Stage 2, namely seeking approval from the client to proceed to the next stage. On Tobias Partners' construction, of its own motion it could "proceed to [the] next stage" without having ever sought the client's approval. Its construction, in my view, is inconsistent with the express words of the Architecture Agreement and with the evident commercial purpose of allowing the client a measure of control over its own exposure. I reject it.

1. I note that Mr Benson also submitted that a section 96 application could be pursued in respect of part of a design concept that had not been fully resolved under Stage 2. This may be so, but it does not assist in the proper construction of the Architecture Agreement. It may be that with a particular project the client and the architect could agree that work on a section 96 application could commence, even before all aspects of the design concept are resolved. If so, the parties will necessarily have modified the Architecture Agreement to that extent. However, this has no relevance to this case. As I have stated, there was no finding of fact by her Honour that Mr Phillips had agreed that work on Stage 3 could commence.

1. It follows that I reject grounds, 1, 2 and 3 of Tobias Partners' cross appeal.

Costs Appeals

1. Both parties sought leave to appeal against her Honour's costs order. In the costs decision, her Honour set out the principles governing an award of costs following contested litigation. Neither party suggests that her Honour was in error in the formulation of those principles. Under the heading "[d]iscussion", her Honour addressed the issues upon which each party had succeeded or failed, considered whether those issues were severable from the other issues in the trial and, overall, determined the extent of each party's relative success and failure in the proceedings. Again, neither party pointed to any specific part of her Honour's costs judgment which suggested any error in formulating the principles or in applying them.

1. Nevertheless, Mr Phillips contends that her Honour erred in placing insufficient weight or no weight on the proposition that most of the sum paid into Court, following an unsuccessful summary judgment application made by Tobias Partners under the Building and Construction Industry Security of Payment Act 1999, would be returned to him. Her Honour referred to the unsuccessful application for summary judgment by Tobias Partners under that legislation, as well as the fact of the payment entered for funds into Court in a number of places in the costs judgment. Tobias Partners' lack of success in that application was clearly a factor that led to a reduction in the amount of costs that her Honour awarded to it. Beyond that, I do not accept that her Honour was obliged to address how much of the funds paid into Court were to be repaid to Mr Phillips, if that was meant to represent some different measure of success than he achieved in the overall proceedings. Her Honour certainly did address that latter consideration.

1. Tobias Partners contended that her Honour erred in the assessment of the overall time and cost involved in litigating the issues upon which it was unsuccessful. As I have already stated, Tobias Partners pursued an unsuccessful summary application. It also did not succeed in its claim to recover fees for Stage 3. Despite this, it only suffered a reduction in the costs that it recovered of 25 percent.

1. Tobias Partners' invitation to reconsider the assessment that her Honour made of the overall contribution, in terms of time and expense, that the issues upon which it failed made to the proceedings appears to represent an invitation to reconsider matters of fact. It need hardly be stated that her Honour was in the best position to assess those matters.

1. In the end, neither Mr Phillips' nor Tobias Partners' contentions raised any arguable case of any error on the part of her Honour in the exercise of her discretion to award costs. They certainly did not raise any arguable case of any error of law. I refuse both parties leave to appeal from her Honour's costs order.

Further Resolution

1. It follows from the above that I will dismiss the appeal and the cross appeal. However, as I indicated during oral argument, I will not enter final orders in this Court for three reasons.

1. The first is that the parties appeared to indicate that there may be an agreed basis for the alteration of some part of the judgment under the slip rule to reflect an apparent mathematical error.

1. The second is that there may be a need for some consequential orders concerning the funds paid into Court.

1. The third is that the parties may wish to address the costs of the proceedings in this Court. In that regard, I can indicate that my present view is that the appropriate order is each party should pay their own costs. Strictly, the appropriate order would be that Mr Phillips' summons be dismissed with costs and Tobias Partners' cross summons be dismissed with costs. However, such orders are likely to lead to more cost and expense in undertaking an assessment. I suspect the true position is that neither party wants to have anything to do with each other after the end of this litigation. An order whereby each party pays their own costs seems to me to be a less cumbersome outcome.

1. For the present, I will direct the parties to file brief supplementary submissions on the form of relief and costs. I will allow a period that will enable them to consider this judgment when it is published on Caselaw.

1. Accordingly, the Court orders that:

(1)   On or before 17 May 2013 each party file and serve written submissions concerning the form of relief and costs of the proceedings in this Court, such submissions not to exceed four pages in length.

(2)   On or before 21 May 2013, each party file and serve any written submissions in reply on those matters, such submissions not to exceed one page in length.

(3)   Each party to email a copy of their submissions to the Associate to Beech-Jones J at or about the time of filing.

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Decision last updated: 07 May 2013